Dictionary / Accumulated Depreciation
What does Accumulated Depreciation mean in accounting?
Quick definition
Accrual & timingThe fixed-asset valuation account offsetting depreciation provisions. This term guides how bookkeepers record, classify, and explain related transactions in routine financial reporting.
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Examples
The credit builds the running total
At the June 30 close, your pilates studio posts $95 of depreciation on a reformer you put in service last year. Depreciation expense hits the P&L for $95, and the credit goes to accumulated depreciation, which was $2,280 on May 31 and is $2,375 after the close. On the balance sheet the reformer still shows its $5,700 cost; the credit does not write that asset down. In QuickBooks Online this is the credit side of the recurring depreciation journal, and in Xero it is the depreciation run. Match the fixed-asset schedule accumulated column to the general ledger contra-asset: both should be $2,375, not $95.
The P&L line is not the amount already taken
In October your machine shop quotes a used mini mill to a fabrication customer, and the October P&L shows $210 of depreciation expense on that mill. You almost treat $210 as the amount already taken; that figure is this month's provision, not the valuation account. Open the fixed-asset schedule: cost is $12,400 from a machine dealer and accumulated depreciation is $7,980, so remaining value is $4,420. The $210 already sits inside the $7,980. Use the contra-asset total when you price a sale or a lender asks for remaining value; the P&L line is only this period.
Why it matters
If you have equipment, vehicles, or furniture on the books, this account shows up at every close. Each depreciation provision hits the P&L as this period's expense, and the same dollars credit this contra-asset so the balance sheet still shows original cost. Mix it up with depreciation expense and you will treat a running total as one month's profit hit, or you will write the cost down and lose the history you need when you sell, scrap, or borrow against the asset. Keep the asset at cost, let this valuation account grow, and read remaining value as cost minus the contra-asset, not as this month's P&L line.
Further reading
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What is Accumulated Depreciation in bookkeeping?
The fixed-asset valuation account offsetting depreciation provisions.
When should I use Accumulated Depreciation?
Use Accumulated Depreciation when the transaction facts match its definition and you need the ledger and financial statements to reflect the correct account and period.
What is a common mistake with Accumulated Depreciation?
Accumulated Depreciation is used for accumulated depreciation entries, while Abandonment covers a related but distinct bookkeeping purpose. Review both terms before posting unusual transactions. A common mistake is applying it by label only instead of checking the underlying transaction details.